The biggest financial mistake you can make in your 20s

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The biggest financial mistake you can make in your 20s


In your 20s, you're starting your journey into adulthood and navigating all of the things that come along with it.

A major part of that is learning how to manage your money. For many people, learning how to manage money may merely be a process of trial and error.

But there's one financial mistake that can cost you big time -- only paying the minimum on your debt. Minimum payments are required each month to satisfy your debt repayment, based on your balance and repayment plan.

But they're just the very minimum you can pay, so if you have the means, you should try to pay more than the minimum.

Whether you have student loans, credit card debt or both, paying only the minimum on your debt can cause you to pay more interest over time and make it difficult to get ahead with your finances.

Here's a closer look at how paying only the minimum can be the biggest financial mistake you make in your 20s -- or at any age for that matter.

Student loans

Having paid off $81,000 in student loans, I personally know how burdensome student loan debt can be.

I paid off $68,000 in less than five years, but for the five years prior, I simply paid the minimum on my student loan debt because that's what I thought I was supposed to do.

It didn't occur to me that I could -- or even should -- pay more than the minimum, even after securing a few raises early on in my career.

If you can afford to, paying more than the minimum in order to get out of debt early can be a good idea, as long as you can cover your bills and put some money toward savings.

Student loans can have lower interest rates than credit cards, so if you have both credit card debt and student loan debt, you may want to focus on your credit card debt first. Take a look at your account statements to see which one has the higher interest rate.

Making more than the minimum payment on your student loan: An example

Student loan expert Mark Kantrowitz of offers an example that highlights how paying the minimum on your student loan debt can really add up.

"Let's compare two scenarios involving $25,000 in student loan debt with a 6 percent fixed interest rate," he says.

Scenario No. 1:
The borrower repays the loan using the 10-year Standard Repayment Plan.
Monthly payment: $277.55
Number of payments: 120 (10 years)
Total payment including interest: $33,306.21

Total interest paid: $8,306.21.

Scenario No. 2:
The borrower makes an extra payment of $100 a month on top of the Standard 10-year payment amount.
Monthly payment: $377.55
Number of payments: 81 (6.75 years)
Total payment including interest: $30,438.16

Total interest paid: $5,438.16.

"[In the second scenario], making extra payments of $100 a month saves thousands of dollars in interest over the life of the loan," Kantrowitz says.

An added bonus? It also cuts over three years off the repayment term, getting you to financial freedom much sooner.

Credit cards

When used responsibly, credit cards may help build your credit. However, if you're not careful, they can lead to overspending, which could subsequently land you in credit card debt.

"In addition to the [possibly] negative psychological and emotional effects, paying only the minimums on your debt is negative mathematically as well," says Jason Reiman, Certified Financial PlannerTM at

Your credit card's monthly minimum payment is just that -- the minimum required by the lender. By not paying your balance in full each month, you could be paying more in interest. Not only that, but paying the minimum could mean it'll take quite a while to get out of debt.

Making more than the minimum payment on your credit card: An example

Say you have a credit card with a balance of $2,000 and a 12 percent annual percentage rate (APR) and your lender's minimum payment requirement is $25 per month.

According to Credit Karma's debt repayment calculator, it will take you 162 months to pay off your debt - and you'll end up paying more in interest ($2,044) than the principal!

Along with reducing how much you'll pay in interest, paying more than the minimum can significantly reduce your repayment time.

In the example above, if you double your payment to $50, your repayment time would drop to 52 months and you would pay $567 in interest.

How to avoid this costly mistake

Paying only the minimum on your student loans and credit card debt can be costly in interest and time. If you're having trouble paying more than the minimum, look at your expenses and see if there are places where you can cut back.

If you're unable to cut back any further, consider side hustling to earn more. Every bit can help -- even if it's just $10 or $25.

You can also typically look at your student loan or credit card statements to see how much is going toward interest and how much is going towards your principal, which might motivate you to get out of debt as soon as possible.

Additionally, you can use a debt calculator and put in your desired payoff time to see how much your monthly payment should be each month.

Bottom line

Making minimum payments can feel fine -- at least you're making some sort of payment, right?

But while making some payment is better than missing a payment, if you can afford it, it's crucial to put more toward your debt than just the minimum. Doing so can help you save big on interest and pay off debt early so you can free up money and start saving for your future goals.

About the Author: Melanie Lockert is a freelance writer and event planner currently living in Los Angeles. She is the author of Dear Debt: A Story About Breaking Up With Debt. She has been featured on Oprah, Huffington Post, Business Insider, The Globe and Mail and more.

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I think the author of this article missed the boat completely.

Great title but focuses on secondary factors.

The biggest 'mistake' someone in their 20's can make is being unemployed.  Not job, no income.  No income, no way to make any forward progress financially.  You may have no choice or control over being umeployed but have no doubt it is the single greatest factor in your financial survival.

Some might say that's obvious, tell that to the legions of unemployed or underemployed....Start with primary factors, then expand articles out tto secondary and tertiary issues.

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